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 Tue Aug 8, 2017
SVH Tracker: Ignore the total head grade numbers, the real headline is the "tailings" grade
    Publisher: Kaiser Research Online
    Author: Copyright 2017 John A. Kaiser

Novo Resources Corp (NVO-V: $3.15)

SVH Tracker - August 8, 2017: Ignore the total head grade numbers, the real headline is the "tailings" grade

Novo Resources Corp, which was halted at the open, released very positive results for its "700 kg" bulk sample from the Purdy's Reward project in Australia on August 8, 2017. Novo traded as high as $3.33 during the 1.5 hours remaining after trading resumed before closing up $0.33 at $3.15 on 1,521,700 share volume. Brent Cook, who visited the project between August 2-4, published an Exploration Insights Alert on Sunday in which he does a stupendous job describing the Wits 2.0 story, including Quinton Hennigh's "biogenesis" alternative to the standard alluvial and hydrothermal theories as to how the 2.6 billion ounce Witwatersrand reefs formed, but makes the strange declaration that he plans to buy a small stake with the expectation that he buy more at a cheaper price provided results justify doing so. It's like he volunteered to be the sacrificial goat whose action enables others stranded on the sidelines to get a much better price. But this is classic behavior in an emerging major new discovery; the stock is always over-priced in terms of available information and everybody who is not long tries in vain to talk the stock down. Brent is quite clear that he thinks the Wits 2.0 story should be taken seriously, but he loathes exposure to the core uncertainty, namely, "what will be the economics of mining Wits 2.0 at today's gold price?"

Novo's news release helped out the optimists in a big way. The table above shows the formal results, but to understand what it means one has to understand the method by which the results were generated.The "700 kg" sample, actually weighing 542.3 kg when dry, was split into duplicate samples weighing 272.8 and 269.5 kg. These samples were first crushed to minus 6 cm and everything caught by a 2 mm screen was fed into a Steinert XSS T sorting machine which uses X-Ray imaging and a metal detector to identify and separate those particles containing metallic gold. The portion that fell through the 2 mm screen was assayed by screen fire assay.

The "sorted concentrate", which represented 2% of the initial sample weight, was then crushed to minus 2 mm during which visible coarse nuggets were recovered by hand, creating a "coarse gold concentrate". The remaining minus 2 mm fraction from the "sorted concentrate" was run over a wet concentrating table and the heavies hand panned to produce a "fine gold concentrate", middling (fancy word for between big and small) and tailing. The coarse and fine gold concentrate were combined and had their gold weight established using specific gravity methodology. The middling and tailing was analyzed through screen fire assay.

The 2 mm plus material that the sorting machine rejected as containing gold became the "sorted tailings". The "sorted tailing" was also crushed minus 2 mm and run over a wet concentrating table to produce a concentrate, middling and tailing. The concentrate and middling were screen fire assayed and the tailing was subjected to LeachWell cyanide leach analysis. The results for the 3 types of "sorted tailings" were mathematically combined to generate a calculated head grade for the sorted tailings.

The head grades for the sorted concentrate and tailings were combined to yield 87.76 g/t gold for the first sample and 46.14 g/t for the second sample, with a weighted average of 67.08 g/t or 2.016 oz per tonne which constitutes a rock value of USD $2,550 per tonne at a $1,650 per oz gold price. The graphic above shows the coarse gold concentrate from the two samples after an acid wash. Those two photos represent 30.1 grams of gold, almost an ounce of gold (31.103 g/oz). That is the headline grabbing news which the cynics can try to shoot down by insinuating that Michael De Guzman's team has emerged from the Kalimantan jungle bearing the fruit of two decades panning for gold.

Yes, there will be plenty of Bre-X jokes about Wits 2.0, but they are not to be taken seriously. Much more serious is the assertion that Novo got lucky in picking the right spot at the top of an 11 metre wide conglomerate bed. This is what people in the mold of Brent Cook will warn, and they are absolutely right. The Wits 2.0 conglomerate beds at the northern margin of the Hamersley Basin have a style of gold mineralization that is much coarser than in Wits 1.0. What we are likely witnessing is the way gold deposition took place in the near shore environment of an inland lake or continental shelf that is no longer present at the margins of the Witwatersrand Basin. It is a severe nugget effect. The northern margin of the Hamersley Basin may host a completely intact version of Wits 1.0.

What we have is the equivalent of a diamond bearing kimberlite dyke which will be almost as expensive to assess. Novo is already proposing to undertake a pilot drilling program of 30 shallow 20-50 metre deep holes using a 17.5 inch diameter rig of the sort used to extract bulk samples from kimberlite pipes. There is, however, an important difference between bulk sampling a kimberlite for diamonds and a conglomerate bed for gold. Bulk sampling can readily establish the diamond carat grade of a kimberlite, but it is much more difficult to establish its carat value because the value of a diamond crystal is a function of the 4C's: carat weight, crystal shape, color and clarity. Most of a kimberlite's diamond grade is made up of small diamonds whose value pales when compared to a very large diamond with octahedral shape and top color and clarity such as the Type IIa diamonds that occur within Lucara's Karowe pipe. Quantifying the presence of Type IIa diamonds requires an awful lot of expensive bulk sampling.

The difference between gold and diamonds is that gold is valued purely by weight. While it matters if the carat grade is comprised mainly of tiny diamonds, it does not matter if gold is present in bedrock in the form of very fine grains, micron sized in fact such as in Nevada's Carlin-style deposits. The average 2.16 opt grade of the Novo bulk sample may have grabbed all the headlines, but the real headline should be that the "sorted tailing" contributed 12.53% of sample #1's 87.76 g/t grade and 15.63% of sample #2's 46.14 g/t gold grade. Novo management describes the head grades as "encouraging" which in exploration geology is the euphemism for "failure". In the world of nugget statistics such caution is understandable. But Quinton Hennigh and his team must be doing cartwheels about the gold absent from the photographs above, namely 4.94 grams, 3.0 g from sample #1 and 1.94 g from sample #2. In effect sample #1 had an 11.0 g/t grade from the fine gold and sample #2 had 7.2 g/t gold. In terms of overall grade the 542.3 kg sample averaged 9.1 g/t gold from the fines along. That is stunning! Novo has not stated this. You have to calculate it from the facts disclosed.

This particular sample came from the Purdy's Reward property in which Novo has a binding MOU with ASX-listed Artemis Resources Ltd whereby it can earn a 50% right to all the conglomerate or paleoplacer hosted gold mineralization within the Artemis land package by spending $2 million over 2 years. The relationship between Artemis and Novo is already dysfunctional.

On Monday Artemis put out a news release proclaiming that over the prior 4 days Purdy's Reward had yielded 547.4 g of gold (17.6 ounces) from sampling over a 900 m stretch of the conglomerate bed. Artemis does not specify how the water-melon seed shaped nuggets were recovered (ie by screening soil above the conglomerate bed or jackhammered bedrock) though judging from the news release photographs it looks like Artemis is using a small excavator to expose the conglomerate.

Artemis claims that is has established a 3 km strike of the prospective conglomerate bed. This is all juicy information, but one would think if both Novo and Artemis are conducting work on Purdy's Reward they would coordinate their news releases. Artemis seems intent on operating a clown show while Novo is struggling to put this story on a credible scientific footing. It's almost as though Artemis still does not understand the magnitude of Wits 2.0 and is treating it as a jolly good pump and dump opportunity. If the Man of Many Names supposedly lurking in the shadow of Artemis and the Man from Monaco who got parachuted into the Artemis chair last year had any sense they would get the deal executed and join forces with the Novo team to advance a story that is so big it eclipses most people's greed limits. That is why at this stage I caution jumping into Artemis as a cheaper alternative to Novo and suggest that Spec Value Hunters assume that what is present on Purdy's Reward is also present on the adjoining Comet Well property in which Novo has secured an 80% stake, which is where helicopter cattle counter Johnathan Campbell first spotted the pits dug by metal detector wielding Australians, and where 6.5 km of the prospective conglomerate bed has been established.

Returning to the 9.1 g/t grade of the "sorted tailings" in the Novo sample, imagine a dyke-like sheet with a strike of 6.5 km, two metres thick, and a fairly shallow down-dip extension of 2,000 m with a specific gravity of 2.6. The tonnage footprint is 67,600,000 tonnes. If that graded 9.1 g/t gold just from the fines alone, it would host nearly 20 million ounces gold. The in situ rock value would be USD $370 per tonne at $1,265 gold. Proving it would be similar to a kimberlite play: bring in petrographers to develop a deep understanding of the host lithology and its surrounding marker beds, engage in stratigraphic core drilling which outlines a "target for future exploration" (TFFE) and establishes an average grade for the "fines", and then drill large diameter holes to "bulk sample" for the gold nugget effect. Very expensive but at a cost that is a drop in the bucket relative to the "size of the prize".

Much of that tonnage footprint would be open-pittable with a simple crush-gravity separation-carbon in leach recovery circuit. In fact, it is possible that the Steinert sorting machine which operates at 48 tph ((1,000+ tpd per unit) could be deployed in a multi-unit configuration. What would it cost to develop and operate such a mine at 15,000 tpd for 12 years? Time for an outcome visualization such as the beta testers are already doing in the Share Collective where tour guide JohnKaiser has squared off as "local freak show" optimist against "local freak show" pessimist Sericite? The optimistic "local freak show" scenario assumes something very special took place on the Comet Well and Purdy's Reward ground and nowhere else. Imagine the Wits 2.0 scenario where this "something special" took place along several hundred kilometres of the Hamersley Basin's northern margin, most of which has been tied up by Novo Resources Corp? Imagine if Novo carved it up into a dozen parcels that got farmed out to gold producers on carried to production terms with stiff expenditure timelines and with 40% or better retained by Novo? How would you price Novo today if it had 40% of a dozen Wits 2.0 mines coming into production a decade from now? The combined 12 million ounces of annual production would be less than 15% of current annual global gold production, so you don't have to worry about flooding the market with too much metal. This is the dream that is starting to capture the imagination of a public that has suffered horribly in the resource sector since 2011.

We are not there yet in terms of technical validation that allows the "definitive assessment" craved by Brent Cook and the machine play architects who have come to dominate the funding gateways in the resource junior space. The person to watch for now is Eric Sprott to whom Greg Gibson, recently appointed director of Novo, has by now reported about his site visit to Karratha. Sprott is a big picture gambler, not a small picture actuary. By now he must be tiring of the soul wrenching bitterness required of the apocalyptic gold bug mindset he embraced in 2009, and thinking back to how much more fun it was when Fancamp's Peter Smith showed him the Great Red Spot in Botswana and dared Eric Sprott to leave it alone. If Eric Sprott embraces Wits 2.0, all hell with break loose in the junior exploration space, because Sprott has already hedged his optionality bets by embracing existing system "rethink" plays such as Osisko's Windfall district which do not require a better gold price. If he wanders down the food chain into the domain of conceptual, out-of-the-box exploration plays such as Novo's Wits 2.0, we will have the biggest junior exploration bull market ever. But it doesn't matter what Eric Sprott does. Within six months Quinton Hennigh and his team at Novo will have sorted out how to measure the Wits 2.0 mineralization, and they will have done enough work outside Comet Well-Purdy's Reward to know whether it is just a very big "local freak show" score like Robert Friedland's Voiseys Bay that gets the stock bought out between $5-$10, or takes the stock into the $50-$100 per share range where it becomes a Barrick built not on Carlin but on Wits 2.0 in Australia. I am confirming that Novo Resources Corp remains a Good Relative Spec Value Buy at $3.15 with a near term target in the $5-$10 range as the market warms up to the Wits 2.0 scenario and becomes comfortable that the smaller "local freak show" scenario can be quantitatively validated.


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